Distressed PSUs’ stake sales needed o far the government has divested stakes in public sector undertakings (PSUs) like Cochin Shipyard, Housing and Urban Development Corporation (Hudco) and insurance firms like General Insurance Corporation (GIC) and New India Assurance, etc. It intends to divest further in many companies, in- cluding Hindustan Petroleum Corporation Ltd (HPCL). In addition, the government might mobilise close to Rs 10,000 crore from Bharat 22 ETF, which contains several PSUs. The most common thing about these divestments is that a majority of them are largely decent profit- making PSUs. i However, in one area where the government could make significant impact for the PSUs concerned or for * the fiscal balance of the government itself is the mid- sized PSUs, which are stressed (loss-making or peren- nially sick) or which are making meagre profits (also pay very poor dividend), but trade at exorbitant valu- ations on the markets. Fortunately, the current bull market, which is mother of all previous bull markets in terms of These PSU aggregate market cap stocks are build up, has rewarded ~ extre even such stressed and Jatil mely sick PSUs. volatule on both : The market cap of downsides and upsides some of these companies j has moved up 100% to - _— A nearly 500% from the 52- ortunal ly, suc! week low despite many huge run-up in their of them not being able to stock prices helped make substantial profits. neither the com anes Coincidently, many of ip them have low floating concerned nor the stocks. : mmm A metal PSU trades gove 3 ent. Only a even at 90 PE while com- smart investors en¢ parable peers in the pri- up with substantial - _vate sector trade at less i italisi than 20 PEs. ginscntaingan Oy cine P PSU, despite huge losses stock prices of these in the last three years, PSUs trades at 14 times its an- pbeaemor icp) Pipe ae nual sales. PSUs en- gaged in trading busi- ness trade at over 35 to 80 times their earnings. One of these trading PSUs saw its market cap going up as high as Rs 150,000 crore about 10 year's ago, only to fall 95% after four years. A technology PSU, whose operating profit is less than the grants-in-aid it receives from the govern- ment, has seen its stock go up almost five-fold in the last 52-weeks. Another PSU engaged in service business trades at EV to Ebittda (Enterprise Value to Earnings Before Interest, Tax, Depreciation & Amortization) of over 115, arare phenomenon in this market. This company saw its market cap falling by 85% in 2014 from its peak in 2013 and again risen more than five-fold now from its 2014 low. These PSU stocks are extremely volatile on both downsides and upsides in the markets. Unfortunately, such huge run-up in their stock prices helped neither the companies concerned nor the government. Only the “smart investors” end up with substantial gains capitalising on the volatility in the stock prices of these PSUs. A dynamic approach of the government (a domi- nant stakeholder of these companies) in terms of periodic divestment of stakes or rights issues at at- tractive discounts at the peak of the valuations by the companies would go a long way in strengthening the fiscal balance of the government or balance sheets of those concerned PSUs. It would also help in avoiding extreme volatility in these stock prices and thereby, minimise the wealth destruction for the gullible retail investors. The writer is founder and managing director, DBawinamine Daconrch and Adnisarv